2 Center for American Progress | Trickle-Down Economics and Broken Promises
Gini index for U.S. households
Source: U.S. Census Bureau, “Table H-4: Gini Ratios for Households, by Race and Hispanic Origin of Householder,” available at http://www.census.gov/hhes/www/income/data/historical/inequality/ (last accessed October 2013).
0.50.450.40.351967 1972 1977 1982 1987 1992 1997 2002 2007 2012
G i n i r a t i o
Average annual growth in real gross domestic product, by top marginal tax rate, 1950-2010
Source: Bureau of Economic Analysis and Tax Policy Center.
28–313538.6Top marginal income tax rate 39.65069–7575–8090+0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
Average real GDP growth
inequaliy ourigh or insised on is necessiy or opimal growh. In 2012, or example, conservaive columnis and poliical commenaor Michael anner wroe ha “inequal-iy may no be growing a all.
Economis Diana Furchgot-Roh goes even urher in wriing abou he “myh o increasing income inequaliy,” concluding ha “inequaliy has declined raher han increased.”
Bu a preponderance o economic researchand he real-world experi-ences o millions o Americans who winess rising inequaliy ﬁrshandshow his o be unrue. Te Gini index, economiss’ well-esed measure o inequaliy and one he U.S. Census Bureau oﬃ-cially calculaed, shows ha he Unied Saes has seen a seady rise in income inequaliy since 1980 (see ﬁgure 2).
Oher conservaives acknowledge ha inequal-iy may be rising bu claim ha i is a posiive developmen ha provides Americans wih srong incenives o work hard and innovae. Tis is wha led Richard Epsein, a senior ellow a he Hoover Insiuion, o pen he column “In Praise o Income Inequaliy,” in which he akes aim a “increased regulaion and axaion” as holding back equiable growh.
According o rickle-down heory, cuting he op marginal ax rae should generae he larger incenives needed or sronger economic growh, even i doing so also drives up inequaliy. Bu in realiy, our naion saw is highes growh raes no when he op marginal ax rae was 28 percen, bu when i was 75 percen o 80 percen (see ﬁgure 3).O course, his comparison does no ake ino accoun remendous srucural diﬀerences in he economy over hese periods, and here has been a long and robus debae among economiss on he eﬀecs o inequaliy on economic growhdaing back o Adam Smih’s acknowledgemen o boh he coss and beneﬁs o inequaliy. Yale Universiy economis Arhur Okun se he conours o he modern debae wih his 1975 book,
Equality and Eﬃciency: Te Big radeoﬀ
, which argued ha greaer income inequaliy oﬀers more rewards or work and invesmen, and hence income inequaliy and economic eﬃciency are in ension.